Sacramento to scale back Measure C medical-marijuana tax revenues due to federal crackdown

February 01, 2012

The forecast is getting pretty cloudy for tax revenues from the city of Sacramento’s Measure C medical-marijuana sales tax.
According to Brad Wasson, a city revenue manager, Sacramento was on track to meet estimates of $1 million in revenue during its first year. But that track has been targeted by U.S. Attorney Benjamin Wagner, who has zeroed in on the city’s medical-pot clubs for closure.

The city of Sacramento took in $552,000 over the first five months, collecting a 4 percent sales tax on medical cannabis from about 39 dispensaries. In November 2010, voters approved the marijuana tax by a massive margin of 71 percent, and it took effect July 1, 2011, the beginning of the city’s fiscal year.

Monthly revenue peaked in that first month at $152,000, and dropped each month to $138,000, $131,000, $73,000, and just $58,000 in November, that last month for which there is available data, Wasson said.

Part of the decline was anticipated to be seasonal, Wasson said. Outdoor crops harvested in the fall lead to a glut in the black market, and a slump in dispensary sales, he said. But numbers were expected to pick back up.

Then, in October, Wagner publicly pilloried dispensaries, declaring that all must close down. The city of Sacramento was in the process of permitting some 39 clubs at the time, but many of clubs in the city closed for good, Wasson said, while others closed and then reopened.

It was the first federal-seizure suit in the city, according to Americans for Safe Access regional coordinator Courtney Sheats. Another round of letters sent to landlords that threaten forfeiture recently hit Sacramento city clubs within 1,000 feet of a school, as well, of which there are “many,” she said.

Measure C tax projections will likely have to be rounded down, too, Wasson explained. “There’s some weird stuff going on,” he said. “We’re ahead of the million dollars [projection], but we’ll probably scale the projections back when we do our midyear report to the city council at the end of this month.”

“It’s really hard. You can’t do a standard analysis.”

Some clubs, for instance, owe back taxes, he added. “We’re trying to sort out what’s happening with dispensaries and legal actions and court cases, so we haven’t been real aggressive on business-tax collections. There’s still more work to do, and there could be some money that comes in.”

Sheats, who has been organizing weekly protests over the medical-marijuana crackdown on Wednesday nights at 7 p.m. outside of the downtown federal courthouse, said the issue of lost tax revenue will be null if clubs lose an ongoing fight for survival.

“If the Department of Justice does not allow the dispensaries to operate, the city will lose those tax funds,” she said.

Patient advocate and Sacramento resident Ryan Landers said about 20 clubs are left, and one club is closing each week, due to either a direct threat from Wagner or landlord fears over crackdown news. He estimates the city stands to lose its $1 million per year in taxes, and Sacramento County obviously lost potentially $3 million a year, assuming its dispensaries were taxed at the same rate as the city’s instead of being shut down.

In December, Sacramento County banned all dispensaries after spending upward of $1 million on counsel and four additional code-enforcement agents for the remainder of the fiscal year. Nearly all clubs in the county are thought to be closed.

In addition to lost tax revenue, there are other ancillary costs to the crackdown, Landers said, such as millions of dollars in lost rents, as well as the loss of hundreds of well-paying jobs with benefits and a subsequent loss in housing income.

“I think it’s sad,” he said. “I was glad to see the city being able to keep departments open with that revenue.”

The crackdown does nothing to stop supply or demand, he noted; it merely deprives the community of revenue to which it’s entitled, and decreases safety for patients and residents.

He said Wagner’s actions align with the Department of Justice’s recently disclosed efforts to arm cartels, launder their funds, and protect favored gangs.

“Who are the beneficiaries of this? The black market and the cartels. The price is going up, and people are going to cartels for their weed,” Landers said. “It makes you wonder.”